Revaluation of land applying IAS 16 and Section 17 of IFRS for SMEs and its impact on taxation and accounting

Abstract

This research aimed to analyze the accounting and tax implications of the revaluation of land in Ecuadorian companies, applying IAS 16 Property, Plant, and Equipment and Section 17 of IFRS for SMEs. The objective was to determine how revaluation methodologies (elimination and the proportionality factor index) impact financial statements and tax obligations. The methodology used was descriptive, comparative, and explanatory, with a quantitative approach to assess the accounting and tax impact. Among the main findings, it was identified that the revaluation of land generated a revaluation surplus of $28,191.43, which was recorded in Other Comprehensive Income and increased equity without being considered income. Additionally, a deferred tax liability of $7,047.86 (25% of the surplus) was determined, implying a higher tax and contribution payment (an additional $238.92) due to the capital gain. In conclusion, the revaluation of land under IAS 16 or IFRS for SMEs directly impacts equity and generates a deferred tax liability, increasing the future tax burden. The correct application of these methodologies is crucial for presenting financial statements at fair value, improving the transparency and quality of financial reporting.